When the "80/20" principle creates opportunities

What happens when everyone one uses the same ‘rule of thumb’? Most of us use general principles to simplify the complexity around us. But if almost all of use make the same simplifications, and we base our work on that which is most obvious, then someone else benefits from that which is least obvious.

Analyst relations programmes are full of these neglected opportunities.

Many business people are familiar with the “80/20 principle”: this is a rule of thumb that says that 80 of what you’re interested in probably come from 20% of the variables. It’s often called the Pareto Principle, in reference to Vilfredo Pareto [1]. So, for example, lots of analyst relations manager reason that 80% of the analyst influence comes from 20% of the analysts. That reasoning is not reflected by data, rather managers use this ‘rule of thumb’ because it’s so widely accepted. In some companies, it’s a formal part of the culture. But because managers take this as an assumption, rather than on the basis of data, we view their approach as a superstition rather than a rational judgment.

Of course, if you have some data that show that 20% of the analysts produce 80% of the influence, and if you knew which analysts those were, then that would be interesting. Lighthouse supplies data like this through Analyst Impact Modeling. Most people, however, don’t use real data to focus their effort. They also start to overlap these top 20%: they assume that just one firm, and/or analysts in just one country, and the handful of analysts with the most media profile, [and so on] have 80% of the analyst impact on their global sales. The end result of this is that 80% of analyst relations effort is focused on much less than 20% of the analysts.

Indeed, AR is sometimes more focused than this: many firms aim to focus 100% of their effort on the 20% in the 80/20 principle, leaving the rest untouched. They feel that the greater simplicity improves their overall effectiveness.

The end the result of this is two-fold.

1. The vast majority of AR effort is targeted on the analysts thought, in various ways, to be a the top. A huge amount of effort is directed at these analysts. As a result, additional effort has little effect. The vendor effort put into most relationships with Gartner analysts in the US is an order of magnitude greater than the average effort put into relationships with others. This means that vendors struggle to differentiate themselves: lots of voices makes every voice harder to hear. As a result, the effort focused on the top tier is ineffective.

2. The other result is that effort expended on analysts who are less obvious is much more likely to change those analysts’ opinions. Certainly, many of these analysts are not influential. Many are. Even if vendors have perfect knowledge, then they do not allocate 20% of their effort to the analysts with 20% of the effort.

Of course, even if the effort it targeted, the targetting can be wrong. It normally is, and that is why most AR effort is wasted.

Instead of thinking about 80:20 ratios, AR managers should be thinking about where analysts are sensitive to change. An extra 10% of AR effort will make much less impact directed at the top analysts than it will aimed at those in the middle. Few managers will be comfortable to make that change, and fewer could defend it. However, this is exactly the strategy that will create the best outcomes.

Note

[1] It’s an unflattering reference: Pareto did not invent the principle, nor might he have endorsed it.